IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v15y2022i7p275-d845689.html
   My bibliography  Save this article

Investor Perception, Market Reaction, and Post-Issue Performance in Bank Seasoned Equity Offerings

Author

Listed:
  • CNV Krishnan

    (Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, OH 44106, USA)

  • Yu He

    (College of Business, University of Nebraska-Lincoln, 730 N 14th Street, Lincoln, NE 68588, USA)

Abstract

Using a large sample of bank seasoned equity offerings (SEO) from 2002 to 2017, we first documented detailed descriptive statistics, and showed that nonperforming assets ratio, our primary measure of bank asset quality, reached the highest value immediately after the 2008 economic crisis, which also corresponds to a higher number of SEOs around these years because banks needed to recapitalize. The capital ratio, which is required to be at least at a minimum level (relative to risk-weighted assets) for banks by regulation, also increased after the economic crisis, which may be due to a higher requirement for banks as well as banks’ desire to hold more capital. The SEO announcement period abnormal stock-returns reached the lowest number around the economic crisis, as did the longer-run 6-month, post-SEO cumulative abnormal returns and buy-and-hold abnormal returns. Examining the differences between banks, we found, in both univariate and multivariate regression results controlling for other variables, that the bank capital ratio as at the time of the SEO announcement is significantly and positively associated with announcement period abnormal returns, while nonperforming assets ratio of the bank as at the time of SEO announcements is not. However, the nonperforming assets ratio as at the time of the SEO announcements had a significantly negative association with post-SEO, 6-month longer-run abnormal stock returns, while the capital ratio did not have any significant association. The nonperforming assets ratio as at the time of SEO announcement was also significantly and negatively related to bank return on assets 6 months and 12 months after SEO, while the capital ratio was not. Thus, investors appear to perceive a well-ingrained, well-publicized regulatory norm—the capital ratio—as indicative of value creation as at the time of bank SEO announcements, while loan asset quality, which may be relatively more opaque, may determine post-SEO performance.

Suggested Citation

  • CNV Krishnan & Yu He, 2022. "Investor Perception, Market Reaction, and Post-Issue Performance in Bank Seasoned Equity Offerings," JRFM, MDPI, vol. 15(7), pages 1-21, June.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:7:p:275-:d:845689
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/15/7/275/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/15/7/275/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hamid Mehran, 2011. "Bank Capital and Value in the Cross-Section," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 1019-1067.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
    3. Mourouzidou-Damtsa, Stella & Milidonis, Andreas & Stathopoulos, Konstantinos, 2019. "National culture and bank risk-taking," Journal of Financial Stability, Elsevier, vol. 40(C), pages 132-143.
    4. Leung, W.S. & Taylor, N. & Evans, K.P., 2015. "The determinants of bank risks: Evidence from the recent financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 277-293.
    5. Nguyen, James, 2012. "The relationship between net interest margin and noninterest income using a system estimation approach," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2429-2437.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Said-Nour Samake, 2022. "Prudential Regulation and Bank Efficiency : Evidence from WAEMU Zone," Working Papers hal-03540209, HAL.
    2. repec:zbw:bofitp:2020_013 is not listed on IDEAS
    3. Ashraf, Badar Nadeem & Zheng, Changjun & Jiang, Chonghui & Qian, Ningyu, 2020. "Capital regulation, deposit insurance and bank risk: International evidence from normal and crisis periods," Research in International Business and Finance, Elsevier, vol. 52(C).
    4. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    5. Alin Marius Andries & Anca Maria Podpiera & Nicu Sprincean, 2022. "Central Bank Independence and Systemic Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 18(1), pages 81-130, March.
    6. Maria Kasselaki & Athanasios Tagkalakis, 2014. "Financial soundness indicators and financial crisis episodes," Annals of Finance, Springer, vol. 10(4), pages 623-669, November.
    7. Zaman, Gheorghe & Georgescu, George, 2016. "Provocări în perioada tranziției la economia de piață în România. Creșterea gradului de îndatorare externă și internă [Challenges facing Romania during the period of transition to a market-based ec," MPRA Paper 70740, University Library of Munich, Germany.
    8. Cisheng Wu & Teng Liu & Xiaoxian Yang, 2023. "Assessing the Impact of Digital Finance on the Total Factor Productivity of Commercial Banks: An Empirical Analysis of China," Mathematics, MDPI, vol. 11(3), pages 1-16, January.
    9. Mikel Bedayo & Gabriel Jiménez & José-Luis Peydró & Raquel Vegas, 2020. "Screening and Loan Origination Time: Lending Standards, Loan Defaults and Bank Failures," Working Papers 1215, Barcelona School of Economics.
    10. Chen, Sichong, 2013. "How do leverage ratios affect bank share performance during financial crises: The Japanese experience of the late 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 1-18.
    11. Owen, Ann L. & Temesvary, Judit, 2018. "The performance effects of gender diversity on bank boards," Journal of Banking & Finance, Elsevier, vol. 90(C), pages 50-63.
    12. Osei-Tutu, Francis & Weill, Laurent, 2023. "Individualism reduces borrower discouragement," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 370-385.
    13. Haichao Fan & Xiang Gao, 2017. "Domestic Creditor Rights and External Private Debt," Economic Journal, Royal Economic Society, vol. 127(606), pages 2410-2440, November.
    14. Mazumder, Sandeep, 2014. "Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries," Economic Modelling, Elsevier, vol. 40(C), pages 117-135.
    15. Ana Kristel Lapid & Rogelio Mercado & Peter Rosenkranz, 2023. "Concentration in Asia's cross‐border banking: Determinants and impacts," Pacific Economic Review, Wiley Blackwell, vol. 28(2), pages 267-292, May.
    16. Thanh C. Nguyen & Vítor Castro & Justine Wood, 2022. "Political environment and financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 417-438, January.
    17. Wang, Jiamei & Chen, Haibin & Zhang, Heng & Luo, Jianchao & Cheng, Mingwang & Zhang, Jiaping, 2022. "Property rights reform and capital adequacy ratios of rural credit cooperatives in China," Economic Modelling, Elsevier, vol. 106(C).
    18. Marco FRIGERIO & Daniela VANDONE, 2018. "Virtuous or Vicious? Development Banks in Europe," Departmental Working Papers 2018-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    19. Bülent Köksal & Cüneyt Orman, 2015. "Determinants of capital structure: evidence from a major developing economy," Small Business Economics, Springer, vol. 44(2), pages 255-282, February.
    20. repec:diw:diwwpp:dp1359 is not listed on IDEAS
    21. Wegener, Christoph & Kruse, Robinson & Basse, Tobias, 2019. "The walking debt crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 382-402.
    22. Reischmann, Markus, 2016. "Creative accounting and electoral motives: Evidence from OECD countries," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 243-257.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:15:y:2022:i:7:p:275-:d:845689. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.